GFRE

It's been awhile since I've introduced a new small cap stock pick and since 2008 has decimated equity valuations across the board, maybe it's time to go shopping.

The stock universe is filled with companies selling at or below net asset value, companies involved with China, companies in niche markets, companies with a great story and companies selling at PE's in the single digits with growth in the double or triple digits. What is rare though is finding a single company that has all of these characteristics.

GULF RESOURCES (GFRE @ $0.22 - OTCBB)

From Web site:

Manufacturing bromine and specialty chemical products

Gulf Resources is a leading provider of bromine, crude salt and a portfolio of various specialty chemicals throughout China. Our products are necessary components for China's flourishing oil and paper-making industries.

Gulf Resources is one of only six companies with a highly coveted Chinese license for bromine exploration, production and distribution. Bromine is a chemical element that is used in the refrigeration, medical, agrochemical, and oil field industries. While the international market is large and growing, China currently consumes all the bromine produced domestically. Gulf Resource will capitalize on the growing demand for bromine with its large proven reserves in Shouguang, China.

In addition to bromine, our company manufactures and supplies crude salt, which is found in large quantities near the bromine brine wells. Gulf Resources also develops numerous specialty chemicals for China’s papermaking and oil & gas industries.

Gulf Resources is aggressively pursuing complementary acquisitions, which coupled with sustained organic growth, will help us become a dominant worldwide player in the bromine and specialty chemical industries.

Key Statistics

Market Cap: $21.93M
P/E: 1.16
Revenue per share: $0.79
Cash per share: $0.23
Price per share: $0.22
52 Week high: $3.15
52 Week low: $0.15


Technical Analysis


Above is a Weekly chart of GFRE. It is still in a longer term downtrend channel but only a few cents away from a major breakout. A breakout on the Weekly chart would confirm an MACD cross-over Buy signal and suggest an attempt at the 50 day moving average up at 1.35, a 400% advance from current prices. I've also included a smaller term uptrend channel forming since mid-October. The top of this channel is about 0.45, a 100% gain from current prices.

Trade Triangles


On the Weekly Market Club chart GFRE is still on a Sell signal. But it would only take a pop above 0.25 this week to generate a new Buy signal. Below is the daily chart, it flipped to a Buy on Friday and any strength this week, related or unrelated to this blog, will easily challenge the Weekly chart to get on board the bullish trend.


The Story

Earlier this year, with GFRE trading at $2.80, Equities Magazine did an excellent write-up on the company. Below are some highlights and below that, a link to the article. But for the market crash, this was a good speculative buy at $2.80. At $0.22, it is a no-brainer.

GFRE is one of only six companies that hold a license to produce bromine in China. They already are China's largest bromine producer. Bromine is used in agriculture, oil and gas drilling and papermaking. China is still a net importer of bromine, meaning GFRE can sell everything they can produce to the world's fasting growing market. The world market for bromine is about $1.2B with $249M coming from China.


THIS IS A COMPANY WITH 20% THE CHINA MARKET AND A MARKET CAP OF ONLY $22M!


Kicker: In 2006 the Chinese government passed a law prohibiting the licening of any further bromine producers. Thus GFRE is one of only six companies producing bromine in China and the state has declared that there will be no further competition allowed.


Could this story get any better?



*Gulf Resources maintains property rights on over 87 square kilo-
meters (21,500 acres) of land containing over 2.27 million tons of
proven reserves.

*Bromine is a non-renewable resource. Bromine is only found in large quantities in four countries: the United States, Israel, Jordan and China.

*From the CEO of Gulf Resources:

Already the largest player in the Chinese bromine market with over a 20% market share, we plan to aggressively pursue additional complementary acquisitions, which coupled with sustained organic growth, will help us become a dominant worldwide player in the bromine industry. In addition, we expect ancillary growth from the portfolio of specialty chemical products we manufacture for the oilfield industry. Gulf Resources, Inc. will continue to be a prominent figure in the Chinese chemical industry while obtaining international recognition.

Link to the March, 2008 article in Equities Magazine.


Kind of a Disclaimer

I usually own shares of a company before touting them on my blog. In the past few months, probably due to some prescient market calls, my readership has grown significantly. Thus any stock I write up, like Gulf Resources, is likely to get a certain amount of buying upon publication of the blog, causing a pop in price.

I DON'T NEED TO MAKE MONEY LIKE THAT.

As I write this on Saturday morning, I do not own a single share of GFRE. In fact, I would prefer to wait for the break-out above $0.25 before purchasing these shares. If the stock opens Monday and trades above $0.25, I expect to begin accumulating the shares. Since I expect near term price gains to easily exceed $0.50, I'll buy at any price under 50 cents. Any price higher then 50 cents will cause me to probably wait for a pullback. This is my road map to purchasing GFRE, subject to change of course, but this is how I am intending to play it as of now.

Recommedations

Take a good long look at the GFRE charts, read the above linked article from Equities Magazine and go explore the company's web site.

Then make up your own mind.

A